Intertemporal Market Divison a Case of Alternating Monopoly

METEOR RM/01/021

Posted: 9 Apr 2011

See all articles by P. Jean-Jacques Herings

P. Jean-Jacques Herings

Maastricht University

Ronald Peeters

University of Otago

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Date Written: November 1, 2001

Abstract

In dynamic entry-and-exit models, common understanding is that potential entrants will enter into the market up to the point where all excess profits are eroded. Dominant incumbent positions are possible only under specific circumstances, such as the presence of substantial barriers to entry, or when incumbents can credibly threaten to punish rivals with losses upon entry. In this paper, we report on an equilibrium with market dominance that exists in a simple two-firm model that features neither entry barriers nor punishment strategies. this equilibrium induces an alternating monopoly - despite the fact that the model also sustains a Cournot duopoly. Even when initially both firms are active in the market, an alternating monopoly reveals itself rather quickly. Moreover, the alternating monopoly equilibrium Pareto dominates the Cournot equilibrium - as it is close to the cartel outcom.

Keywords: Dynamic Competition, Opoligopolistic Competition, Stochastic Games, Monopoly

Suggested Citation

Herings, P. Jean-Jacques and Peeters, Ronald and Schinkel, Maarten Pieter, Intertemporal Market Divison a Case of Alternating Monopoly (November 1, 2001). METEOR RM/01/021. Available at SSRN: https://ssrn.com/abstract=319220 or http://dx.doi.org/10.2139/ssrn.319220

P. Jean-Jacques Herings (Contact Author)

Maastricht University ( email )

Department of Economics
P.O. Box 616
6200 MD Maastricht
Netherlands
+31 43 3883636 (Phone)
+31 43 3884878 (Fax)

HOME PAGE: http://www.personeel.unimaas.nl/p.herings/herings.htm

Ronald Peeters

University of Otago ( email )

Department of Economics
P.O. Box 56
Dunedin, Otago 9054
New Zealand

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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